NZD/USD – Manufacturing Sector strongest since May 2012

Jan’s seasonally adjusted PMI came in at 55.2, much higher than December’s reading of 50.4, and is the highest read since May last year. This result is also the highest since 2007 if we compare other Jan readings.

The headline PMI is made up of 5 separate indices – Production: 57.7, Deliveries 57.6, Finished Stocks: 56.1, New orders: 55.8 and lastly Employment: 48.4. Though 4 of the 5 indices have shown growth, it is disconcerting to see Employment figures continue to fall. Also, despite the lift in figures, proportion of positive comments fell to 50.0%, compared to 56.6% in December and 57.6% in November. It appears that the private sector remains pessimistic towards longer-term prospects which will certainly be felt in the following months.

Hourly Chart

In the shorter-term, it seems that market does not trouble itself with the finer details but simply focus more on the bullish headline figure. NZD/USD jumped 50 pips higher immediately, with price moving up higher to test the 0.848.  resistance, which is the highest point NZD/USD has reached since Aug 2011. Price is currently trading just under the significant ceiling with Stochastic readings suggesting that a temporary pullback may be possible. Support can be found along 0.84 – 0.842 consolidation, with bullish momentum only invalidated should price break below 0.84 but preferably below 0.838 to open up 0.83 – 0.832 floor once more.

Weekly Chart

Longer term price action suggest the same with Stochastic reading entering into the Overbought region. However, bullish momentum is still undeniably strong, and hence further confirmation e.g. breaking below rising trendline and below 0.805 may be necessary before we can confirm the Stochastic top. If current bullish setup is broken, 0.745 becomes a viable target for bears, with a breach changing the longer-term bullish landscape and potentially ushering a new bearish one.

Fundamentally, New Zealand economics are still not looking good with employment remaining a sticky issue. The Salvation Army recently gave the ruling Government a “D” for handling unemployment, stating that the target for 170,000 new jobs have not been met. Latest official statistics shows 163,000 unemployed, with unemployment rate in certain indigenous groups reaching as high as 16%. If this trend continues, ability for NZD/USD to remain elevated becomes suspect despite a hawkish RBNZ.

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